United States District Court, N.D. California
ORDER GRANTING LANNETT'S MOTION TO DISMISS IN
PART AND DENYING IN PART; GRANTING FIRST DATABANK'S
MOTION TO DISMISS; DENYING MOTION FOR RECONSIDERATION Re:
Dkt. Nos. 55, 64, 66
William H. Orrick United States District Judge.
Genus Lifesciences Inc. (“Genus”) complains that
its competitors in the market for cocaine hydrochloride nasal
spray, defendants Lannett Company Inc.
(“Lannett”) and Cody Laboratories, Inc.
(“Cody”), Lannett's wholly owned subsidiary,
falsely advertise, market and promote their product (which is
not approved by the United States Food and Drug
Administration) and unfairly compete with it in ways that
violate the law. Genus also sues First Databank, Inc.
(“First Databank”), a pharmaceutical pricing list
company. On defendants' prior motions to dismiss, I found
that some of Genus's claims against Lannett and Cody were
plausibly stated but that none of its claims against First
Databank were. Order Granting Lannett Company, Inc.'s and
Cody Laboratories, Inc.'s Motion to Dismiss in Part and
Denying in Part; Granting First Databank, Inc.'s Motion
to Dismiss (“Order”) [Dkt. No. 53]. I dismissed
each claim with leave to amend, except for Genus's
contributory false advertising claim against First Databank,
which I dismissed with prejudice.
has now filed an amended complaint. First Amended Complaint
(“FAC”) [Dkt. No. 54]. It has also filed a motion
for reconsideration related to my dismissal with prejudice of
its contributory false advertising claim against First
Databank. [Dkt. No. 55]. Lannett and Cody, jointly, and First
Databank move to dismiss the FAC. [Dkt. Nos. 64, 66]. For the
reasons stated below, Lannett and Cody's motion to
dismiss is granted in part and denied in part, First
Databank's motion to dismiss is granted, and Genus's
motion to reconsider is denied.
previous Order contains a detailed factual background; I
incorporate it by reference.Order at 2-8. Genus manufactures
an FDA approved spray under the brand name GOPRELTO®
(“Goprelto”) and Lannett and Cody manufacture an
unapproved spray under the brand name C-Topical®
(“C-Topical”). Genus newly alleges in the FAC
that it has conducted a survey of Lannett's customers,
revealing that 73.4% of them falsely believe that C-Topical
is FDA approved. FAC at ¶ 10. The survey also shows that
70.4% of Lannett's customers falsely believe that Lannett
only sells FDA approved products. Id. Genus uses
this survey evidence to bolster its claims that
C-Topical's packaging and labelling, as well as
Lannett's websites, are unlawfully misleading.
Id. at ¶¶ 106-128. In addition, Genus
alleges new survey data related to whether C-Topical's
unapproved status is material to its customers. Id.
at ¶¶ 153-154.
FAC, Genus asserts: (i) new false advertising allegations
based on several of Lannett's advertisements which
describe C-Topical as a “pre-1998” drug
(Id. at ¶¶ 47, 52, 67-82; Exhibits 34-37
attached to FAC [Dkt. No. 54-2); (ii) new allegations that
Lannett's product catalog identifies C-Topical as generic
(Id. at ¶ 105); (iii) new allegations related
to other listing companies (Id. at ¶¶
133-135); (iv) additional allegations related to First
Databank's practices and communications with Genus
(Id. at ¶¶ 137-149, 169-205, 218-220); and
(v) additional allegations in support of its Sherman Act
claims against Lannett (Id. at ¶¶
Order, I granted Lannett and Cody's motion to dismiss in
part and denied it in part. On Genus's Lanham Act claims
against Lannett and Cody, I ruled: (i) Genus may plead a
false advertising claim against Lannett based on the
implication that C-Topical is approved using survey data that
91% of pharmacists believe that all products pharmacists
dispense are FDA approved; (ii) statements in SEC filings and
investor calls that C-Topical is “grandfathered”
or sold under a “preliminary new drug
application” cannot support a Lanham Act claim without
specific allegations that they were made for the purpose of
influencing customers of cocaine hydrochloride solutions to
buy C-Topical, or were disseminated sufficiently to the
relevant purchasing public (pharmacists, hospitals, and
doctors) to constitute “advertising” or
“promotion” within the pharmaceutical industry;
(iii) C-Topical's indication for oral, laryngeal, or
nasal topical administration is false because the FDA defines
a “topical” route of administration as to a
particular spot on the outer surface of the body and the
mucus membranes of the oral, laryngeal, and nasal cavities
are not on the outside of the body; (iv) Lannett's
failure to affirmatively identify C-Topical as unapproved to
third party intermediaries and customers was sufficient to
state a claim as to customers based on the survey data, but
not as to third party intermediaries without further
supporting allegations; (v) the meta description on
C-Topical's website that it was generic could support a
Lanham Act claim because the landing page would not disabuse
a consumer of the notion that C-Topical is generic; (vi)
general statements on Lannett's website were not false
but could be misleading in context combined with allegations
that they conveyed the implied message that C-Topical was
grandfathered or sold with FDA approval and deceived a
significant portion of recipients; (vii) general statements
on Cody's website related to compliance with FDA
requirements could support a Lanham Act claim because
Cody's website contained an affirmatively false statement
that its active pharmaceutical ingredients were FDA approved;
and (viii) the appearance and content of C-Topical's
labeling and packaging could not support a Lanham Act claim
because they did not constitute an overt false statement and
Genus failed to allege that the advertising actually conveyed
the implied message that C-Topical was FDA approved and
deceived a significant portion of recipients. Order at 9-20.
to Genus's Sherman Act claims against Lannett, I found
that that Genus failed to state a monopolization claim
against Lannett based on false advertising for two reasons.
Id. at 22- 23. First, Genus did not allege over what
time period Lannett's meta description was online, how
long the challenged statements were on Cody's website, or
how long Lannett described C-Topical as having a
“topical” route of administration. Id.
Genus also failed to allege why these statements were not
readily susceptible to neutralization by rivals. Id.
Next, Genus's monopolization claim based on Lannett's
listing practices failed because Genus did not allege that it
had been substantially foreclosed from the entire cocaine
hydrochloride market. Id. at 23-24. Finally,
Genus's state law claims against Lannett under
California's false advertising and unfair competition
laws survived because they were premised on the same
allegations of false advertising as Genus's Lanham Act
claims. Id. at 25.
granted First Databank's motion to dismiss on several
grounds. Genus's false advertising claim failed because
Genus was unable to allege that First Databank was anything
more than a reference database. Id. at 27-30. First
Databank's listing of C-Topical did not constitute
commercial speech since it did not propose a commercial
transaction between First Databank and consumers of cocaine
hydrochloride. Id. Genus failed to allege that
Lannett and First Databank had a quid-pro-quo relationship
based on C-Topical's sales. Id. Its contributory
false advertising claim against First Databank failed under
the tests in Duty Free Ams., Inc. v. Estée Lauder
Cos., 797 F.3d 1248, 1275 (11th Cir. 2015) and ADT
Sec. Servs., Inc. v. Sec. One Int'l, Inc., No.
11-cv-05149-YGR, 2012 WL 4068632, at *1 (N.D. Cal. Sept. 14,
2012). For the Duty-Free test, Genus did not allege
that First Databank knowingly induced or caused Lannett's
conduct or materially participated in it. Id. at
30-33. Under the ADT Services test, Genus did not
allege that First Databank either induced the primary Lanham
Act violation by Lannett, or that First Databank continued to
supply an infringing product to Lannett. The claims I
dismissed against Lannett, Cody and First Databank were with
leave to amend, except for Genus's contributory false
advertising claim against First Databank, which was dismissed
with prejudice. Id. at 33.
Federal Rule of Civil Procedure 12(b)(6), a district court
must dismiss a complaint if it fails to state a claim upon
which relief can be granted. To survive a Rule 12(b)(6)
motion to dismiss, the plaintiff must allege “enough
facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). A claim is facially plausible when the
plaintiff pleads facts that “allow the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citation omitted). There must be
“more than a sheer possibility that a defendant has
acted unlawfully.” Id. While courts do not
require “heightened fact pleading of specifics, ”
a plaintiff must allege facts sufficient to “raise a
right to relief above the speculative level.”
Twombly, 550 U.S. at 555, 570.
deciding whether the plaintiff has stated a claim upon which
relief can be granted, the court accepts the plaintiff's
allegations as true and draws all reasonable inferences in
favor of the plaintiff. Usher v. City of Los
Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the
court is not required to accept as true “allegations
that are merely conclusory, unwarranted deductions of fact,
or unreasonable inferences.” In re Gilead Scis.
Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). If the
court dismisses the complaint, it “should grant leave
to amend even if no request to amend the pleading was made,
unless it determines that the pleading could not possibly be
cured by the allegation of other facts.” Lopez v.
Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).
LANNETT AND CODY'S MOTION TO DISMISS
The Lanham Act Claims
Lanham Act Claims and FDA Approval
Lanham Act creates a private right of action for competitors
to bring claims for false or misleading advertising, even if
the challenged products are regulated by the FDCA. POM
Wonderful LLC v. Coca-Cola Co., 134 S.Ct. 2228, 2233
(2014). “Courts can evaluate Lanham Act claims that do
not require specialized knowledge or interpretation of the
FDCA's requirements.” Belcher Pharm., LLC v.
Hospira, Inc., No. 17-cv2353, 2018 WL 4643292, at *4
(M.D. Fla. Apr. 9, 2018). “For example, courts can
review a claim that a competitor falsely represented its
product as FDA approved.” Id. (citing
Innovative Health Sols., Inc. v. DyAnsys, Inc., No.
14-cv-05207-SI, 2015 WL 2398931, at *8 (N.D. Cal. May 19,
2015)). “And claims that involve whether a
product's advertising misleads consumers also fall within
a court's jurisdiction.” Id. (citing
Church & Dwight Co. Inc. v. SPD Swiss Precision
Diagnostics, 104 F.Supp.3d 348, 362 (S.D.N.Y. 2015).
state a false advertising claim under the Lanham Act, a
plaintiff must allege: “(1) a false statement of fact
by the defendant in a commercial advertisement about its own
or another's product; (2) the statement actually deceived
or has the tendency to deceive a substantial segment of its
audience; (3) the deception is material, in that it is likely
to influence the purchasing decision; (4) the defendant
caused its false statement to enter interstate commerce; and
(5) the plaintiff has been or is likely to be injured as a
result of the false statement, either by direct diversion of
sales from itself to defendant or by lessening of the
goodwill associated with its products.” Wells Fargo
& Co. v. ABD Ins. & Fin. Servs., Inc., 758 F.3d
1069, 1071-72 (9th Cir. 2014) (citing Southland Sod Farms
v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir.
1997)). Plaintiffs must allege all five elements of the test
in order to state a false advertising claim. Id.
“When the alleged representation is not an overt false
statement, but merely misleading in context, the evidentiary
showing required to sustain a Lanham claim is higher”
and “proof that the advertising actually conveyed the
implied message and thereby deceived a significant portion of
the recipients becomes critical.” JHP Pharm., LLC
v. Hospira, Inc., 52 F.Supp.3d 992, 1002-03 (C.D. Cal.
2014) (citing William H. Morris Co. v. Grp. W, Inc.,
66 F.3d 255, 258 (9th Cir. 1995)).
have found that when a Lanham Act claim is based on the mere
implication that a drug was approved by the FDA, a plaintiff
must also plead other facts to show that customers were
actually confused. Par Sterile Prod., LLC v. Fresenius
Kabi USA LLC, No. 14-cv3349, 2015 WL 1263041, at *4
(N.D. Ill. Mar. 17, 2015). In Par, the court found
the following additional allegations to state a Lanham Act
claim: (i) that buyers believe all prescribed drugs
identified on the Price Lists are FDA approved and (ii) that
in some surveys 91% of pharmacists are actually confused
about whether all drugs that appear on industry price lists
are approved. Id. at *4.
Statements Made in SEC Filings and Investor Calls
Order, I held that statements made by Lannett in its SEC
filings or by its directors during investment calls stating
that C-Topical was “grandfathered” or sold under
a “preliminary new drug application” were not
actionable because they were not accompanied by specific
allegations that they were made for the purpose of
influencing the customers of cocaine hydrochloride solutions
to buy C-Topical, or were disseminated sufficiently to the
relevant purchasing public (pharmacists, hospitals, and
doctors) to constitute “advertising” or
“promotion” within the pharmaceutical industry.
Order at 12-14 (citing Rice v. Fox Broadcasting Co.,
330 F.3d at 1170, 1181 (9th Cir. 2003)). Lannett moves again
to dismiss Genus's attempted revival of its claims based
on SEC filings and statements made on investor calls.
Defendant Lannett Co. Inc. & Cody Laboratories,
Inc.'s Notice of Motion, Motion to Dismiss the First
Amended Complaint (“Lan. MTD”) at 7-8 [Dkt. No.
64]. It argues that Genus's conclusory allegations that
these communications constitute “commercial
statements” or were “advertised to
customers” do not change the non-commercial nature of
these statements. Id. (citing FAC at ¶¶
contends that its claim is not based on the statements in SEC
filings or investor calls alone. Instead, it attempts to
bring those claims in combination with the advertisements
describing C-Topical as a “pre-1938” product (the
“pre-1938 ads”) and that together, this renders
the statements contained in the SEC filings and investor
calls actionable. Plaintiff Genus Lifesciences, Inc.'s
Brief in Opposition to Lannett Company, Inc.'s and Cody
Laboratories, Inc.'s Motion to Dismiss First Amended
Complaint (“Lan. Oppo.”) at 6-9 [Dkt. No. 68].
According to Genus, “this is all one claim”
because it must be read in the context of the overall
complaint. Id. at 6.
problem with Genus's argument is that Lanham Act claims
must be evaluated on a statement-by-statement basis.
Johnson & Johnson Vision Care, Inc. v. 1-800
Contacts, Inc., 299 F.3d 1242, 1247-48 (11th Cir. 2002).
In Johnson & Johnson, the Third Circuit reviewed
a district court decision that reviewed several
advertisements together, rather than on an ad-by-ad basis.
Id. The court ruled that although “a court
must analyze the message conveyed in full context, ”
courts “may not assume context” and the district
court erroneously assumed that consumers would be exposed to
every advertisement in the campaign. Id. (internal
citations and quotation marks omitted).
Genus improperly asks me to assume context. There is no
indication that consumers would have observed the SEC filings
and statements in the investor calls along with the pre-1938
ads. It would be improper to assume that they did without
specific supporting factual assertions.
held in the Order, Genus has failed to state a false
advertising claim based on Lannett's statements in SEC
filings or investor calls because it fails to bring specific
allegations that they were made for the purpose of
influencing customers or were disseminated sufficiently to
the relevant purchasing public. It does not follow that just
because consumers might have seen the pre-1938 ads, they
necessarily would also have seen the SEC filings or listened
to the investor calls. The pre-1938 ads will be considered
separately from the SEC filings and investor calls.
Lannett's motion to dismiss Genus's Lanham Act claims
based on SEC filings and investor calls is granted.
The Pre-1938 Ads
discussed above, Genus attached four new C-Topical
advertisements by Lannett to the FAC. FAC at ¶¶
68-76; Exhibits 34-37. All four describe C-Topical as a
pre-1938 drug (Exhibits 34-37) and three also state that
“A New Drug Application (NDA), with clinical study data
has been submitted to the FDA” (Exhibits 35-37). These
advertisements appeared on www.lannettdirect.com (Exhibit 34)
and on www.entjournal.com (Exhibits 35-37).
argues that these advertisements are not actionable because
Genus has not plausibly alleged that customers were misled by
the statements or that “pre-1938” status was
material to customers. Lan. MTD at 12-13. It contends that
Genus makes an unsupported inferential leap to claim that
purchasers equate “pre-1938” with
“grandfathered, ” or “FDA
authorization.” Id. To plead materiality,
Lannett claims that Genus must plausibly allege that the
statement “pre-1938” is likely to influence
purchasing decisions and its allegations that FDA approval
status is material do not cover these statements.
Id. It points out that the ad on
www.lannettdirect.com also states that “Cocaine HCL is
a pre-1938 drug that has not been approved by the FDA”
and the ENT Journal advertisements state that Cocaine HCL
“has not been proven safe and effective by the
FDA.” Id. It does not address the statements
related to submission of an NDA and clinical study data to
opposition to Lannett's argument that customers would not
equate “pre-1938” with “grandfathered,
” Genus asserts that: (i) C-Topical's customers
would know that 1938 is the year Congress passed the landmark
Federal Food, Drug, and Cosmetic Act; (ii) Lannett equates
the two and repeatedly used the phrase “1938
‘grandfather clause'” in its citizen petition
to the FDA; (iii) the FDA used the same language to deny
Lannett's petition; (iv) if Lannett's customers would
not understand what pre-1938 means, Lannett would not use the
phrase; and (v) Genus specifically alleged that
“pre-1938”means the drug is
“grandfathered” and FDA authorized. Lan. Oppo. at
7 n.8. These arguments apply to the claim related to
submission of an NDA and clinical data as well. Id.
that Genus has sufficiently alleged that people in the market
for a prescription drug such as C-Topical would know what
“pre-1938” means in this context or what the
implication of submitting clinical data pursuant to an NDA
would be. It has sufficiently alleged that the only reason
Lannett would advertise C-Topical as “pre-1938, ”
or that they had submitted an NDA, would be to convince
consumers that C-Topical is an unapproved
“grandfathered” drug product or otherwise
authorized by FDA.
counters that Lannett's materiality argument erroneously
conflates FDA approval with FDA authorization. Id.
It states that a “pre-1938” drug, or one that has
a submitted NDA, is FDA authorized, not FDA approved.
Id. at 7-9. Thus, Genus claims, even where Lannett
admits it has no FDA approval for C-Topical, it still falsely
suggests that C-Topical is otherwise authorized. Id.
And Genus asserts that it has adequately pleaded that
customers would care whether C-Topical was sold with FDA
authorization because it has alleged that the FDA approval
status of a prescription drug is material to customers since
approved drugs provide customers assurance concerning the
quality of the product not afforded to unapproved
prescription drugs. Id. It cites to its survey
evidence showing that the majority of Lannett's customers
would not buy C-Topical if they knew it was unapproved.
Id. Therefore, according to Genus, because customers
care whether a drug is FDA-approved, they implicitly care
whether the FDA authorizes a manufacturer to sell a drug.
with Genus's argument up until the final leap of logic.
Genus has adequately alleged that customers care about FDA
approval. But I am also persuaded by Lannett's argument
on the difference between approval and authorization. The
complaint does not allege that customers care about FDA
authorization and Genus's argument that they must
implicitly care about it is a bridge too far. Genus has not
actually pleaded that FDA authorization, versus approval, is
material to customers of cocaine hydrochloride. As a result,
it has not stated a claim based on the pre-1938 ads. Its
claims based on these ads are dismissed with leave to amend.
C-Topical's Labeling and Packaging
Order, I held that Genus had failed to state a claim based on
the appearance and content of C-Topical's labeling and
packaging and the allegedly misleading similarities between
it and the labeling and packaging of an FDA approved drug.
Order at 19-20. I held that because the alleged
representation was not an overt false statement, but was
merely misleading in context, Genus would have to allege that
it actually conveyed the implied message that C-Topical was
FDA approved and deceived a significant portion of
recipients. Id. In response to that guidance, Genus
conducted a survey of Lannett's customers; allegedly
73.4% of them falsely believed that C-Topical was FDA
approved after reviewing its packaging. AC at ¶¶
motion to dismiss, Lannett claims that this additional
factual allegation is still insufficient because Genus does
not allege that any of the information on the label or
package is false. Lan. MTD at 8-10. According to Lannett,
while the Lanham Act forbids misleading as well as false
claims, “misleading” does not include
“factual propositions that are susceptible to
misunderstanding.” Id. It asks me to disregard
Genus's survey allegations because a survey cannot be
used to ascribe a “misleading” meaning to an
otherwise accurate statement. Id. It claims that it
is required by federal law to include the various statements
on the packaging and label and that under Genus's ...